Abstract

One often meets the view that economic regulation should be understood in
terms of Pareto efficiency. Economic theories of law have traditionally focused
on concepts such as market failure, efficiency, and inefficiency. Proponents
assume that under the conditions of perfect competition, rational economic
actors will enact courses of action that tend to induce Pareto outcomes. The
idea of perfect competition means that markets which are competitive will
induce efficient outcomes. The perfect competition approach has focused on
the conception of market failure as the foundation for designing regulatory
policy. Until recently, lawyers overwhelmingly relied upon a model of
economic contract, developed over the last two decades in law and economics,
as a normative structure to guide efficient decision-making.